Larry Summers and I debated “Did Fiscal Stimulus Help the Economy?” at Harvard this week. There was no video streaming or recording, and I will not try to summarize the back and forth (which the overflow crowd seemed to enjoy), but here is a summary of things I said in my opening remarks. There will be a follow-up debate at Stanford on April 4 which will be recorded.
The issue we are debating today is central to economic policy. It’s an issue where there‘s obviously a great deal of disagreement. Students want to know why there’s disagreement, and the point-counterpoint of debate is an important way to learn. So I thank Harvard for sponsoring this debate, and I thank you all for coming.
I have been doing a lot of empirical research on the impact of discretionary Keynesian stimulus packages—the temporary and targeted packages intended to counter recessions and jump-start the economy by increasing government purchases, transfer payments, or tax rebates. I don’t find convincing empirical evidence that they helped the economy, or that they increased economic growth in any significant or sustained way. In fact, by increasing unpredictability about policy and by raising uncertainty about increased deficits and debt, they are likely to have harmed the economy.
Let me start with a few points of clarification:
First, I want to emphasize that I not saying that permanent or long-lasting changes in fiscal policy, such as tax reforms that lower marginal tax rates, cannot help the economy, or that the automatic stabilizers are ineffective. This debate focuses on temporary discretionary fiscal stimulus packages.